Monday, February 27, 2017

The news below does not have to do with economics, which is the main topic of this blog. But I think it is better to put the story here than in one of my other blogs, as it is an issue of general concern. It's about the freedom of traveling, about the free flow of people (instead of the free flow of capital and goods).

The story reminds me of the days when I entered the United States and was interrogated in the usual manner, having to answer the question if I were a communist or a homosexual. I always answered in the negative, to prevent giving the officer an official (yes, official!) reason to not let me enter the United States, a country that pretended to be the champion and defender of "the free world".

Here is the story, in French, as it concerns a French citizen and I'd like to encourage English speaking people to try and understand another language if they are used to just reading texts in English. With the help of google translation, these days you can understand many languages.

Feb 7, 2017
Shock, as ever, was followed by
denial. The American people couldn’t have consciously committed such a
suicidal act, so the logic went. They must have fallen under the charms
of Russian agents of influence.
If
you were to read the headlines, you would think Moscow had an unrivaled
capacity to change the course of world history. The Kremlin, no doubt,
is reveling in the idea of its supposedly supernatural abilities. In
reality, however, the impact of its hectic interventions was quite
modest, if not insignificant.
It’s
not Russian hackers or FSB spooks who made half of America vote for
Trump. The reason that Trump pulled off his shock victory is the deep
polarization of U.S. society; the emergence of two American nations —
one liberal, the other illiberal.
The United States is not unique. Pretty much every nation in Europe is either already polarized, or drifting in that direction.
The
new global political barricade cuts through nations, ethnicities,
religion, and even families. Notions of right and left, or geopolitical
divides are no longer relevant. In simple terms, it is the conflict
between the 20th and 21st century.
Those
who look back at the 1930s or 1960s with nostalgia invariably end up
voting for Trump, Putin, Brexit, or the swarm of populist nationalists
besieging the European Union. People on the other side of the barricade —
weak and naive as they may be — want the world to keep moving forward
as it did during the post World War II era.
The
breakdown differs from nation to nation. In Russia, polls show only
between 14% and 20% actively oppose Vladimir Putin’s regime, which has
built a broad support base by glorifying (and falsifying) Soviet and
imperial history. In the U.S., with its healthier political culture and
stronger institutions, a relative majority actually voted for Hillary
Clinton, even though Trump eventually won on account of the adjusted
electoral college vote.
Yet it is
exact same divide that runs through the U.S., Russia and much of Europe.
The split is generated by contemporary global culture, not by these
countries’ rather different histories. A modern Russian (or Polish, or
British) progressive liberal is culturally closer to their American
equivalents than to compatriots in the opposite political camp.
Progressive liberals all around the developed world live in the same
cultural bubble. They watch the same TV series, read the same books,
copy the same role models and laugh at the same jokes. Their opponents,
meanwhile, live in a shared global bubble of kitsch infotainment, sleazy
tabloids and fake news inciting hatred towards immigrants and
intellectuals.
Ironically, it was
the camp of backward-looking isolationists that completed the process of
political globalization when they started liaising and helping one
another in their endeavors. The likes of Trump, Putin, Nigel Farage and
Marine Le Pen are now acting as a united front in their effort to undo
the imperfect, yet rather comfortable, world that emerged after the fall
of European Communism in 1991.
As
with many historical macro-alliances, the emerging Nationalist
International is full of internal contradictions. The main one derives
from the fact that it is hard to sustain a global alliance while
spreading hatred and animosity toward neighbors and minorities. These
movements and regimes suffocate without a clear enemy they can vent
people’s anger at. For this very reason, it will be hard for Vladimir
Putin to operate domestic politics in the absence of a perceived
American threat.
Hitler, of course,
resolved this dilemma and found valuable allies all across Europe by
directing people’s fury towards the Jews, a minority present in every
European country. In a similar fashion, today’s far-right are all
targeting Muslim immigrants and, increasingly, their own liberal-minded
compatriots. The main immediate result of Trump’s victory is that the
structured and more-or-less predictable post-1991 world is gone. In its
place is a window of possibility for both horrible and unbelievably
optimistic scenarios.
Ultimately,
our future will depend on the moral, intellectual and—alas—physical
strength of those on either side of the global barricade.

Monday, February 20, 2017

Many Dutch who considered voting at the general elections of 15 March for the Labour Party (Partij van de Arbeid) have decided not to do so when they knew the Labour Party had put Dijsselbloem third on the list.

The main reason for not supporting the Labour Party is that Dijsselbloem has shown, as Chair of the Eurogroup, he is a neoliberal rather than a social democrat. In particular, he has shown this in his policy towards Greece. Instead of supporting the newly elected social democratic government of Tsipras, that in 2015 gave hope to Greeks, he arrogantly supported the neoliberal diktat of Greece's creditors who forced Greece to privatise (sell state property to foreign investors), cut back on public spending and 'reform' pensions and the labour 'market'.

Another reason why many Dutch do not vote for Dijsselbloem's Labour Party is that they see him as an obedient servant of Germany's minister of finance Schaeuble.

But I'd like to stress that Schaeuble's thinking is the same as that of many Dutch and German officials. So for me Dijselbloem is the typical minister of finance who faithfully follows the neoliberal dogmas and interests.

I am afraid the current Greek minister of finance, Euclid Tsakalotos, is doing the same, even though he was critical about so-called labour market reform in an interview last year. This is what he said (I think more as an intellectual than as minister of finance) to Euronews on 14 June 2016:

REFORMINGTHELABOURMARKET
Efi Koutsokosta:
“We see now in France that the government is trying to pass an unpopular
labour reform and we see people in the streets demonstrating. Are you
with the people demonstrating or with the French government that
recently has become a very good friend of yours?”
Euclid Tsakalotos:
“Well, this is an issue that all countries will have to face, labour
market reforms. I am not convinced that Europe is not doing well because
of labour market inflexibility. We’ve been hearing this for very many
decades. There have been a lot of moves to improve labour flexibility
which have had little effect on employment.
In general, for instance, in Greece the institutions [that is, Dijsselbloem, Schaeuble and the others of the so-called Troika] are
going to ask us to make firing more easy but we know and, as you know, I
am an academic economist, the evidence is actually not there that if
you make firing easier, you will get lower unemployment. What you do get
is the same employment but with increasing insecurity for workers”.

However, yesterday (Monday 20 Feb) Tsakalotos agreed at a meeting of eurozone finance ministers chaired by Dijsselbloem that Greece’s bailout inspectors are returning to Athens to seek changes
to the country’s tax, pensions and labour market laws, thus giving way to European pressure for deeper reforms. Who in Greece still have confidence in Tsipras and Tsakalotos?

Friday, February 17, 2017

Dutch
right-wing politician Geert Wilders of the Freedom Party listens in the
courtroom in Amsterdam June 23, 2011. Wilders was acquitted of inciting
hatred of Muslims in a court ruling on Thursday that may strengthen his
political influence and exacerbate tensions over immigration policyREUTERS/POOL/Robin Utrecht

The far-right leader's Freedom Party is already leading with 17% in the polls.

February 18, 2017The Netherlands is witnessing a rise in far-right populists gearing
to take part in the country's elections. Of these contenders, Geert
Wilders is already in the lead with his anti-Muslim stand and promise to
remove the Netherlands from the European Union.
The Freedom Party (PVV) leader will launch his election campaign today,
18 February in which he promises to "de-Islamise" the nation by banning
Muslim immigration, shutting down all mosques and banning the sale of
the Quran in bookstores. According to the Central Bureau for Statistics,
around 5% of the Dutch adult population is Muslim.
While lawyers have pointed out that these plans could be in violation of the constitution, Wilders hinted to AP that there was room for change.
"A
constitution is not something that is (set) in stone and can never be
changed," he told AP. "It's alive as a society is alive and we are now
being threatened by mass immigration and Islamisization and what I see
as the toxic combination of mass immigration from Islamic countries and
at the same time a total lack of demanding for people to assimilate and
to integrate."
The launch of his campaign is expected to be a
heavily guarded event, considering the multiple threats made on his life
for his anti-Islam stand.
"I want us in government," Wilders told the press earlier this week, as he explained his policies, which have found commonality with Donald Trump's
own. He also celebrated the US president's election win back in
November, calling it a "historic victory" and a "revolution" in which
"the people are taking their country back".
Despite criticism of Wilder's far-right views, the Freedom Party is leading in polls with 17%, followed closely by Prime Minister Mark Rutte's People's Party for Freedom and Democracy.

Thursday, February 16, 2017

The article below, published by Seeking Alpha, has staggering news for those who are not familiar with the data and the analysis it presents. Let me highlight a few paras:

- Over
the past eight years, US economic growth and real wages have
underperformed expectations, yet the stock market has tripled in value.

- Since Q1 2009, nominal GDP has been up 31% (17% in real terms), real wages have picked up less than 1%,

- One
could argue that central bank policies are socially non-optimal in that
they reward those who are well off (people who have the ability to buy
stocks and/or real estate) at the expense of those who are savers
(retirees, conservative investors) - who now make little to nothing off
interest - and those unable to invest in risky assets due to a lack of
disposable income. Widening income disparity can breed social conflict
and could be at least be partially attributed to the surprising
electoral outcomes of Brexit, Trump, and possibly additional
unanticipated results in the upcoming European presidential elections in
France, Germany, the Netherlands, and potentially Italy.

Summary

Over
the past eight years, US economic growth and real wages have
underperformed expectations, yet the stock market has tripled in value.
Main
influences include an initially oversold market in 2009, central bank
policies, and heavy credit expansion at the corporate and government
level.
The market’s current price point suggests an overbought market with risk skewed to the downside.
However,
a continuation of negative real rates and additional credit expansion
may continue to provide for a bullish short-/medium-term outlook.

Argument:
The past eight years have provided one of the best bull markets in
history despite one of the weakest expansions out of a recession in
history. It's my belief that the US equities market, taken as a whole,
should be avoided from a value perspective, although I recognize that a
continuation of low rates, further credit expansion, and earnings growth
from upcoming fiscal measures could continue to support higher
valuations.

Overview

Since Q1 2009, nominal GDP has been up 31% (17% in real terms), real wages have picked up less than 1%, yet the S&P 500 (NYSEARCA:SPY) has tripled.
If this article were to be delayed until the second week in March, and
the S&P 500 stays at its current valuation, the rise over the past
eight years will come to a factor of 3.4x - 240%, or 16.5% annualized.
This compares to 3.4% annualized in nominal GDP appreciation, or a
spread of about 13%.

This is a massive discrepancy
that shows that the rise in the US equity markets has been a product of
far more than basic economic growth. Some contributing factors:

1. The S&P was oversold when running below 700 in March 2009

Markets
tend to oversell in times of panic. Fear is a stronger emotion than
greed, and losses tend to hurt far more than gains from a psychological
perspective. Investors pulled their money out of funds in record
quantities and were far undercapitalized when there was a grand
opportunity to snap up many highly underpriced assets. Even though the
crisis was mostly cleaned up by the end of 2008, the market continued to
sell off for another 10-11 weeks after before starting to reverse
course.

The same type of lagging
phenomenon is seen with unemployment, where companies don't begin
rehiring until they're absolutely certain the economy is continuing on
an upward trajectory. Consequently, unemployment always spikes after
a recession rather than during. This explains why U-3 unemployment
peaked in October 2009 at 10%, and didn't fall below 8% until September
2012, a full four years after the worst of the recession, when
unemployment in the fall of 2008 was only 6.1%.

(Source: US Bureau of Labor Statistics; modeled by fred.stlouisfed.org)

2. Low interest rates

This
is a no-brainer with its effect in calculating the value of a business,
which is the amount of cash that can be taken from it over its life
discounted back to the present. The cost of capital is used as the
discount rate. The cost of debt (a portion of the cost of capital) is
lower with lower rates, and is tax deductible assuming the business is
profitable and pays taxes. This compresses discount rates and boosts
corporate valuations even if the numerator term - cash flows, of which a
large portion is earnings - stays constant.

Each
100-bp reduction in the cost of debt projects to increase corporate
valuations by 5%-6%, based on the current financial and capital profile
of the overall US equities market. If cheaper debt also creates the
incentive to take on more debt as a portion of the overall capital
structure, the valuation increase could be even higher assuming the
accretive effects of the relative cheapness of the capital source offset
the additional insolvency risk.

3. Quantitative easing ("QE")

Another
no-brainer, but fundamentally important. Quantitative easing works
through a mechanism by which cash is printed and a central bank uses
that cash to buy a bond or other form of security. This bids down yields
in those assets by reducing their supply in the market and forces
market participants out over the risk curve into riskier assets, such as
stocks and real estate, in order to chase the higher returns of these
assets. This bids up their prices and expects to create a windfall of
wealth that will in turn be spent in the economy in order to drive
growth.

The US Federal Reserve
expanded its balance sheet from $910 billion as of August 2008 (before
the fall of Lehman) to $4.5 trillion as of December 2014, a factor of
5x, where it's mostly stayed since.

(Source: Board of Governors of the Federal Reserve System; modeled by fred.stlouisfed.org)

One
could argue that central bank policies are socially non-optimal in that
they reward those who are well off (people who have the ability to buy
stocks and/or real estate) at the expense of those who are savers
(retirees, conservative investors) - who now make little to nothing off
interest - and those unable to invest in risky assets due to a lack of
disposable income. Widening income disparity can breed social conflict
and could be at least be partially attributed to the surprising
electoral outcomes of Brexit, Trump, and possibly additional
unanticipated results in the upcoming European presidential elections in
France, Germany, the Netherlands, and potentially Italy.

Wednesday, February 15, 2017

For those interested in a critical account of the French government of Hollande's European politics, below is an article that may interest you. I do not know of a similar account of the Dutch government of Rutte's coalition government with the Partij van de Arbeid (the Dutch labour party), which might indicate the lack of critical analysis in the Dutch media on Netherlands' European policy (which would be a serious shortcoming) or it may demonstrate my lack of knowledge about it, partly because I read better the foreign media than the Dutch media.
However, if one of you has seen a similar critical article about the Dutch government's record in European policymaking, please let me know (j.j.teunissen@planet.nl).

Here is the French account of Hollande's European policy, published by Sauvons l'Europe.

Monday, February 13, 2017

In the United States they have Trump and we in the Netherlands have Wilders. In both cases one should look at what they say, and what they do. In the case of Trump, he is now in a position he can do things, as president of the United States. In the case of Wilders, it is unlikely that he will be in that position by becoming the prime or deputy prime minister of the Netherlands, even when he would get more votes than any other party. But he is already criticizing, warning and threatening the other political leaders that if they exclude him from government power, they are not taking seriously the votes of 2,5 million Dutch who are likely to vote for him, and then they will be in for trouble. In a recent television interview he said that neglecting his party will create a popular revolt.

The best strategy to stop Wilders from becoming even more popular after an electoral victory and exclusion from government power (something that once happened to the Dutch labour party before) is to discuss his main electoral points in a serious way, including his criticism of the European Union and political elites and his untenable stance on islam. I hope Dutch politicians will do that and I hope Dutch media will pay attention to a more serious debate than just the rivalry between political leaders. However, I am afraid that the low level of debate and information of what is at stake will continue in the Netherlands.

The low level of political debate and the low level of information is a serious problem and undermines our democracy, not only in the Netherlands but in many countries around the globe.

In the meantime, as a person who likes to read information about what's going on in the world, I am forced to see Wilders' face popping up around every corner and read his propagandistic warnings which serve to increase his popularity. Below is the latest I saw and read.

Put three people in a room who can’t get on with each other. Condemn
them to stay there for all eternity while they torture each other. Sit
and watch as the gruesome story plays out. And what do you have?
One answer is the 1944 existentialist play by Jean-Paul Sartre, Huis Clos. Another is the story of the neverending Greek debt crisis in which the three main characters are Alexis Tsipras, Wolfgang Schäuble and Christine Lagarde.
The plot is as follows. Greece
has been through a terrible slump. Its economy has shrunk by more than a
quarter, equivalent to the Great Depression in the US. Its financial
position has become so parlous and its credit-rating so poor that it
needs financial help to get by. It is currently on its third bailout.
Up until now the money has been provided by Europe and the
International Monetary Fund and it has come with strings attached. The
money for Athens is disbursed in tranches and can be stopped if Greece
fails to go ahead with promised reforms. Athens is balking at inflicting
further pain on its population, which has led to the threat that no
more assistance will be forthcoming. To complicate matters, the
Europeans and the IMF have fallen out.
Put simply, the Greeks say the conditions on them are too severe.
They want debt relief but are resisting demands at pension reform and
for “hire and fire” labour market reform.
The IMF agrees that Greece’s debt burden is far too high and the
stipulation that the country should run an underlying budget surplus of
3.5% a year is unrealistic. The Fund is warning that the debt could
become “highly explosive” and will not financially back the latest
rescue attempt without meaningful debt relief. But it is also insisting
that Greece sticks to a reform programme that the Fund believes will
improve growth prospects.
(...)

And the article ends this way:

Another key player, Schaeuble.

The Europeans have said they would like Greece to be sorted at the
meeting of finance ministers planned for 20 February. This could still
happen if Tsipras decides that the only alternative to liberalising
redundancy rules and pension reform would be to hold a “who runs
Greece?” election that he would almost certainly lose.
The situation could also be resolved if Germany decided to support
the IMF’s call for much more generous debt relief for Greece, or if
Berlin bowed to pressure from Trump and boosted domestic spending.
But the ingredients are there for the neverending crisis to rumble on
into the summer, when Greece will eventually run out of money and will
not be able to pay its creditors. If there is no swift resolution, bond
yields will rise and talk of Grexit will resurface.Huis Clos is known in English as No Exit. For Greece, if life becomes even more intolerable, there is one way out.

If you want to read the recent view of the IMF on the Greek debt crisis, you will find interesting information in this IMF Press Briefing of February 9, 2017: Transcript IMF Press Briefing.

Wednesday, February 8, 2017

Trump plays chicken game, said Dutch columnist Lukas Daalder in an opinion piece hosted by Het Financieele Dagblad of January 6, 2017, under the title "Trump speelt chicken game". You may like the metaphor or not, you may find it realistic or not, but it gives food for thought and that is what I aim at with this series of articles. Below is an account of the article by Lukas Daalder published by Cyprus News Agency; the translation into English of Daalder's words is by Wayne Hall.

"As explained by Lukas Daalder, the American president has adopted as
his navigational guide the well-known game where two drivers race
towards each other to see who will chicken out first and turn the wheel
to avoid a fatal head-on collision. Trump’s objective goal, according to
the article writer is to clear the oncoming traffic lane from
potential competitors or other obstacles that impede his drive for
hegemony.
According to Lukas Daalder, Trump himself circulates in a heavily
armoured vehicle, so that the choice is very simple for those driving
in the opposite lane: either proceed to a head-on collision or swerve to
escape the fatal crash. But the swerving will take the driver out of
the game, to the side of the road, and the damage he will have sustained
will be irreparable. Note that Trump set off on this course by choosing
an easy target, i.e. Mexico, which on account of its objective weakness
is doomed to end up at the side of the road, wrecked.
The point is made that the next victim will be Germany, which Trump
has elevated to the status of number one opponent and for that reason
seeks to neutralize. At first sight such a stance does not appear
logical, Lukas Daalder observes, given that the automobile that conveys
the German chancellor on her rounds is also an armour-plated Mercedes,
so that in the event of a collision Trump himself will not escape
unscathed.
At this point Lukas Daalder brings into the game the Eurozone, which
he likens to a “beaten-up and clapped-out vehicle (a trailer, let’s say)
being towed behind the Mercedes.
As Lukas Daalder puts it: “Trump wouldn’t be Trump if he hadn’t succeeded spotting the weak link, i.e. the Eurozone.
So why should the American president risk a collision with the
Mercedes when he has the option of trapping the lead vehicle by
sabotaging the trailer in that way forcing the vehicle in front (i.e.
Germany) off the road, in that was accomplishing his strategic goal.
Trump doesn’t have to do much, Daalder makes clear. Today (6th
February) the Executive Council of the IMF is convening to make its
decisions on the provision of new economic assistance to Greece. Trump
may admittedly not be the boss of the IMF, but he is the chief
shareholder.
So what will the INF do, given that it has reservations about
continuing the program, seeing Trump in his armoured vehicle descending
on the hapless trailer? Reasonability may be sidelined. But in that
case, the article writer asks, who honestly believes that the Eurozone
will of its own accord make the necessary contribution to Greece, on
the eve – indeed – of crucial elections in many European countries?
Lukas Daalder’s conclusion is that if this scenario materializes, the
run-down trailer (i.e. the Eurozone) will start wobbling dangerously and
heading for ruin."

About Me

As a kid I liked numbers and the sound of strings. I considered studying engineering but chose social sciences because of my interest in people. I combine a theoretical interest with a practical, social approach which brought me to the sphere of policy research. I am interested in reducing the disparity between poor and rich, between the powerful and the less powerful.
In 1973 and 1982 I lived in Latin America. In the mid-1980s, I was able to create an international forum to discuss the functioning of the international monetary system and the debt crisis, the Forum on Debt and Development (FONDAD). I established it with the view that the debt crisis of the 1980s was a symptom of a malfunctioning, flawed global monetary and financial system.
I was one of the driving forces behind the creation of the European Network on Debt and Development that was established at the end of the 1980s to help put pressure on European policymakers.
In 1990, before the beginning of the Gulf War, I cofounded the Golfgroep, a discussion group about international politics comprising journalists, scientists, politicians and activists that meets regularly.
The website of FONDAD is www.fondad.org